Lengthy Impasse Looms On Cuts

Budget Standoff Presents Political Risks on Both Sides

By

Peter Nicholas and

Damian Paletta

Feb. 22, 2013 8:13 p.m. ET

Lawmakers in both parties anticipate that a looming set of spending cuts will take effect next week and won't be quickly reversed, likely leading to protracted political uncertainty that presents risks both to Congress and President Barack Obama.

WSJ's Damian Paletta says the sequester cuts - including painful slashing of defense spending - now seem inevitable. The question now is how long they'll last. WSJ's David Wessel explains the hit to federal employees and when furloughs could kick in.

It had been thought that the cuts, some $85 billion through the rest of the fiscal year, could be averted or quickly replaced with a longer-term deficit-reduction plan. Those expectations have now dissipated. No significant negotiations are known to be under way between the two parties, which are at an impasse over Mr. Obama's demand that any plan to replace the cuts include more tax revenue.

The president and congressional Democrats are looking beyond Friday, when the across-the-board cuts, known as sequestration, are due to take effect. Their strategy is to persuade the public that the cuts would harm defense, education and other programs, make air travel difficult and cost jobs, among other effects. They hope public pressure would force Republicans to reverse course and agree to new tax revenue.

Amplifying the president's message, a new nonprofit that grew out of his 2012 campaign, Organizing for Action, is staging events next week in various communities that would be hit by the sequester.

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Some Democrats are uneasy with the prospect of a drawn-out impasse. "I know that there is some common wisdom out there that people are going to have to see the effects for a while before they can deal" on a replacement for the budget cuts, said Sen. Tim Kaine (D., Va.), whose state has large numbers of federal workers and defense companies. "I just don't believe in that kind of governing."

The Democrats' strategy carries risks for the party. It's unclear how the public will react to the budget cuts, and Democrats could find that people aren't as inconvenienced as they predicted. That could undercut their position in negotiations with the GOP and, potentially, build an appetite for additional cuts to spending that Democrats will oppose.

But a protracted fight over the spending cuts also could take a toll on Republicans. Polling shows Mr. Obama has a far higher approval rating than Congress and that people generally favor his position in the dispute. In the battle for public opinion, the White House will argue that Republicans are the reason people may face longer lines at airport and job furloughs. If that impression takes hold, that could cause trouble for Republicans in the 2014 midterm elections.

Republicans believe they can stay united by accusing Mr. Obama of campaigning rather than negotiating and reminding people that they have backed legislation to replace the cuts to defense programs with nondefense cuts. They say they won't bend to Mr. Obama's demand for new tax revenue and that the public supports their goal of reducing the deficit.

"I don't think anyone on our side is squirming," said Brendan Buck, a spokesman for House Speaker John Boehner (R., Ohio). "We feel like we're on very strong ground."

A lengthy dust-up over the spending cuts threatens to derail parts of Mr. Obama's legislative agenda. He is now using campaign-style tactics against Republicans whose support he would need to pass an immigration overhaul, an expansion of early childhood education and stricter gun controls. He is set to travel outside Washington next week to illustrate the hardships resulting from the sequester—time that he would rather devote to his legislative agenda.

ENLARGE

John Podesta, who co-chaired President Obama's transition team, said the sequester interrupts Mr. Obama's ability to frame his agenda.
Bloomberg News

"It interrupts his ability to frame up the positive agenda that he proposed to the country in the State of the Union," said John Podesta, who co-chaired the president's transition team after the 2008 election. "You get distracted from all the things that you want to do, because you're back in the scrum" of a daily battle over the budget cuts.

Republicans are also coming to believe that the budget cuts won't quickly be replaced. Asked how long he expected the sequester to stay in effect and the political impasse to persist, Rory Cooper, a spokesman for House Majority Leader Eric Cantor (R., Va.) said, "I honestly don't have an answer to the question, because I don't know what the president's goal is."

But, he said, Republicans would sooner leave the spending cuts in place indefinitely than give ground on taxes. "There's not going to be a moment when we break and give him a second tax increase," Mr. Cooper said, referring to the increase in tax rates on high earners that the GOP agreed to in January. "There will be no compromise on tax hikes."

Senate Democrats' bill, which Mr. Obama supports, would require taxpayers with more than $1 million adjusted gross income to pay an effective tax rate of at least 30%. It also would raise smaller amounts of revenue by denying tax deductions to companies for costs associated with outsourcing jobs and by eliminating a tax break for oil companies that drill in tar sands.

Some Republicans are turning their attention to blunting the impact of the spending cuts, rather than averting them. Sen. Jim Inhofe (R., Okla.) is writing legislation to give federal agency heads flexibility to administer the cuts, which are supposed to apply across the board to defense and domestic programs.

Republicans in the House are considering legislation to give the Defense Department more leeway in implementing the cuts. That measure would be part of a bill to deal with a separate fiscal deadline—the fact that funding for much of the government expires on March 27.

That deadline, when funding expires for a number of federal agencies, could prove to be the next flash point, as well as an opportunity to replace the across-the-board cuts. The White House and congressional Republicans could try to revisit the cuts then as part of a broader package to prevent a partial government shutdown, but aides said it remained unclear whether such a deal could be reached.

The fight over spending cuts is the latest in a series of budgetary battles that began in the summer of 2011, when congressional Republicans insisted on deep spending cuts as a condition of raising the nation's borrowing limit. The White House devised the idea of the sequester as part of the deal to raise the debt ceiling, and both Republicans and Democrats voted for the bill that included it.

The automatic cuts were seen as so draconian that Congress would enact a more targeted deficit-reduction deal to make comparable savings. But no such deal has been reached.

ENLARGE

Senate Republican leader Mitch McConnell spoke by phone with the president Thursday for the first time in weeks.
Associated Press

In the current dustup, Mr. Obama is showing little appetite for negotiating with leaders on Capitol Hill. Thursday, Mr. Obama spoke by phone with Mr. Boehner and Senate Republican leader Mitch McConnell, his first time speaking to either GOP leader in weeks. People familiar with the call said it did little to bring the two sides closer to agreement.

The president, in comments at the White House on Friday, cited his plan to make his case to the public.

"Hope springs eternal," he said. "And I will just keep on making my case not only to Congress, but more importantly the American people to take a smart approach to deficit reduction and do it in a way that doesn't endanger our economy and endanger jobs."

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